Saturday, June 25, 2016

Will there be eventual spillover to UC?

We've seen in the case of pensions that the governor first pushes something for CalPERS and other non-UC plans. But then, as with Tier 3, it makes its way into UC. Will that happen with retiree health? Below is an excerpt from the Legislative Analyst's Office's required* analysis of a union contract negotiated with the state:

Bargaining Unit 7 (Protective Services and Public Safety):

...Proposed Funding Changes. The agreement would institute a new arrangement to begin to address unfunded retiree health benefits for Unit 7 members. While the administration’s plan seems to be to keep making pay-as-you-go benefit payments for many years, the new arrangement would begin to fund “normal costs” each year for the future retiree health benefits earned by today’s Unit 7 workers. The agreement would deposit those payments in an invested account that would generate earnings and gradually reduce unfunded liabilities over the next three decades or so.

Under the agreement, all Unit 7 members would contribute 1.3 percent of pay to a retiree health funding account beginning effective July 1, 2017, rising to 2.7 percent of pay on July 1, 2018, and rising again to 4 percent of pay beginning on July 1, 2019. The state would match these contributions to the trust account. Beginning in 2019‑20, total annual employee and state payments to the account would be about $34 million, which is essentially equal to the actuarially estimated Unit 7 rank-and-file normal costs under the most recent state valuation (specifically, the valuation’s “full funding policy” scenario with an assumed 7.3 percent discount rate). Under no circumstances would an employee or beneficiary or survivor be able to receive employee contributions to the retiree health funding account, even if the employee leaves state service after a few years and is ineligible for retiree benefits...

*The LAO is required to provide an analysis of each union contract for the legislature before it can be approved.

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